ETF Trends
ETF Trends

It should not be news to anyone that as the summer has worn on, on a broad basis Commodities have slowly bled lower.

For example we talk about the Precious Metals space this morning in our Options Recap with GLD (SPDR Gold Trust, Expense Ratio 0.40%) trading at its lowest levels today since its June breakout and other precious metals such as Silver and Platinum trading down in sympathy and also at multi-month lows.

Agricultural commodities have not fared much better, as we see Corn, Soybeans, Sugar, you name it, trading much lower, for the most part at least, than where they were two to three months back. Oil prices have actually tanked in the past month or so, with August being an especially difficult month for Oil longs despite almost daily tensions surfacing in the headlines out of the Mideast.

Ample if not over-supply of oil seems to be trumping Mideast distress at least in the short term, and one can look at Natural Gas, Gasoline, and Heating Oil for instance and notice that the recent weakness is not Oil specific, but Fuel/Energy related. For those ETF portfolio managers that are using broad based commodity funds for a balanced approach and asset allocation purposes to the space, the past few months have been very challenging in terms of performance but it does not seem like anyone is necessarily heading for the exits.

The largest fund in the Diversified Commodity ETP space is DBC (PowerShares DB Commodity Index Tracking Fund, Expense Ratio 0.93%), by a multiple of about four larger than the next fund in the category, DJP (iPath DJ-UBS Commodity Index Total Return ETN, Expense Ratio 0.75%). These funds respectively have about $5.3 billion and $1.5 billion in assets under management. GSG (iShares GSCI Commodity-Indexed Trust, Expense Ratio 0.75%) and RJI (ELEMENTS Rogers International Commodity Index Total Return ETN, Expense Ratio 0.75%) are also notable funds in this category, with about $1 billion and $884 million in AUM respectively.

A smaller fund in the space, USCI (U.S. Commodity Index Fund, Expense Ratio 0.80%) has made its mark since its August of 2010 inception in terms of generating notable out-performance (not to mention a 5 star
Morningstar ranking) when compared head to head to say DBC and DJP.

This has not hurt asset raising efforts as we see that even though USCI is trading near its lowest levels currently in 2014, the fund has still managed to pull in more than $300 million year to date (total asset base is now about $832 million).

In a nutshell, the fund’s methodology is tied to the SummerHaven Dynamic Commodity Index, which is rules-based and sifts through twenty-seven possible Commodity futures contracts but ultimately invests in fourteen dependent if they meet quantitative criteria, then “equally weighted and represent six sectors: Energy (WTI crude oil, Brent crude oil, natural gas, heating oil, gasoil), Precious Metals (gold, silver, platinum),
Industrial Metals (aluminum, copper, lead, nickel, tin, zinc), Grains (corn, soybeans, soybean meal, soybean oil, wheat), Livestock (live cattle, feeder cattle, lean hogs), and Softs (coffee, cocoa, cotton, and sugar).

At multi-month lows across a broad swath of commodities, it would not be surprising to see investors add to funds that have performed well in the past such as USCI and DBC for example.

United States Commodity Index Fund

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